space and machinery. If there is only one worker, that worker must do all
the tasks, shifting from one to another and becoming competent at each.
As a second, third, and subsequent workers are added, each can
specialize in one task, becoming expert at it. One can cut the wood into
the required pieces, the second can glue the pieces together, a third
worker can do the necessary planing and sanding, while a fourth worker
attaches the wheels. This process, as we noted in Chapter 1 , is called
the division of labour. If additional workers allow more efficient divisions
of labour, marginal product will rise: Each newly hired worker will add
more to total output than each previous worker did. However, according
to the law of diminishing returns, when there is only an unchanging
amount of physical capital the scope for such increases must eventually
disappear, and sooner or later the marginal products of additional
workers must decline. When the decline takes place, each additional
worker will increase the total output of skateboards by less than did the
previous worker.
Eventually, as more and more workers are employed, marginal product
may reach zero and even become negative. It is not hard to see why if
you consider the extreme case, in which there would be so many workers
in a limited space that additional workers would simply get in the way,
thus reducing the total output of skateboards (a negative marginal
product).
The phenomenon of diminishing marginal returns occurs frequently, even
outside the context of a typical production facility. Some interesting
examples are illustrated in Applying Economic Concepts 7-2.